In a significant shift prompted by a decline in international student enrolments, Unite Group, the UK’s largest provider of student housing, has announced reductions in rent prices and tenancy durations at several of its locations, including Bristol. This development comes as the company has lowered its profit forecasts for the third time in four months, reflecting weaker demand in the sector.
Declining Demand for Student Accommodation
Unite Group has cited a notable decrease in international student applications as a key factor affecting its business. With only 68% of its student beds reserved for the upcoming academic year starting in September, the company finds itself reassessing its strategy. Shares in the FTSE 250-listed firm dropped nearly 10%, marking their lowest point since early 2015.
The company has decided to halt any new student housing projects following the completion of its first build-to-rent initiative in Stratford, which is set to provide 719 beds and is expected to be finished by June. With a focus shifting towards managing properties in cities known for their prestigious universities, Unite aims to target higher tariff institutions that demand top A-level grades from prospective students.
Strategic Property Disposals
In response to the challenging market conditions, Unite Group is actively pursuing a strategy of asset disposal and cost reduction. Recently, the company announced the sale of a 571-bed property located on St Pancras Way in London for £186 million. This transaction is part of a joint venture with Singapore’s sovereign wealth fund, GIC.
Karan Khanna, chief operating officer of Unite, identified Nottingham, Leicester, and Sheffield as particularly difficult markets. In these cities, the company has reduced both rent prices and the length of tenancies from 51 weeks to 44 weeks. Additionally, students in locations such as Bristol and Burnet Court in Edinburgh will find rents starting at £250 per week, reflecting the company’s broader effort to adjust to the current climate.
Future Outlook and Challenges Ahead
Despite the current difficulties, Joe Lister, Unite’s chief executive, remains optimistic about the future of UK higher education. He acknowledged the shifting landscape, noting the trend of more students opting to remain at home and the decline in international postgraduate enrolments. Lister emphasised the need for a strategic repositioning of the company’s portfolio, a process that he anticipates will take time.
The overall student accommodation market, previously seen as a bright spot in British commercial property, has faced significant pressure due to the drop in overseas applications. British universities recorded a 6% decline in international postgraduate enrolments for the second consecutive year. This downturn follows the introduction of a new levy on international students last year and stricter regulations surrounding sponsored study visas.
Unite Group has also recently expanded its portfolio by acquiring Empiric Student Property, which includes 7,700 beds across 68 buildings in 22 cities. However, the company has cautioned that it expects occupancy and rental growth to fall within the lower ranges of its guidance for the 2026-27 academic year. This adjustment suggests a potential for zero to 2% growth in like-for-like income, down from an earlier expectation of zero to 4%.
Strategic Adjustments and Market Dynamics
As part of its strategic response, Unite has cancelled plans for a £147 million development project that was to include 605 beds in Paddington and has postponed its 500-bed Freestone Island scheme in Bristol. The company is now considering various options regarding its landholdings, which could accommodate an additional 2,400 beds, including potential sales and joint ventures.
Matthew Saperia, an analyst at Peel Hunt, has pointed out the considerable challenges facing Unite as it attempts to return to a growth trajectory, highlighting the high level of execution risk involved. Meanwhile, Michael Burt, the chief financial officer, noted that although there was an increase in the supply of purpose-built student housing last year, it remains at roughly half of the levels seen prior to the pandemic.
Why it Matters
The adjustments made by Unite Group reflect broader trends within the UK’s higher education landscape, particularly regarding international student enrolment, which is crucial for the sustainability of many universities and their surrounding economies. As the company navigates these turbulent waters, its decisions will not only impact its own financial health but also the availability and affordability of student accommodation across the country. The outcome of these strategic shifts will likely resonate throughout the sector, influencing policies and investment in educational infrastructure for years to come.
